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Surviving in The Financial Services Industry: The Biggest Challenges Facing This Sector

Jan 28, 2019

Financial Services Industry Overview

The financial services industry encompasses several businesses that are engaged in managing money. This sector plays a vital intermediary role in the world’s economy. Over the past several years, the financial services industry has evolved through a series of digital transformation. These developments have prompted the industry to become more customer-centric. Financial services companies are no longer just competing with other financial firms for consumers’ attention and loyalty. Rather, companies in the financial services industry are now forced to compete with anyone who’s offering a positive experience, including consumer and technology brands. As modern companies in the global financial services industry are more inclined to use technology in order to engage their customers on a deeper level, they are expected to create better relationships and provide more value.

Financial Services Industry Challenges

The financial services landscape has undergone a myriad of changes owing to the advent of fintech startups and the changing business models, mounting regulation, disruptive technologies, and compliance pressure. Moreover, changing customer demands are adding to these mounting challenges. In this article, Quantzig identifies some of the biggest challenges facing the financial services industry and puts them in perspective.

The financial analytics team at Quantzig has been helping companies in the financial services industry to unlock digital experiences through our advanced analytics solutions. Get in touch to know more.

Rising Competition

As mentioned earlier, there is an increase in the number of new entrants such as Fintechs in the financial services industry. These new players are forcing several financial institutions to seek partnerships and/or acquisition opportunities as a stop-gap measure. However, it is also essential to note that in order to compete effectively today and survive over the long term in the sector, traditional banks and credit unions must learn from these new entrants who have honed in on providing a simplified and intuitive customer experience.

Regulatory Compliance

As regulatory fees have increased dramatically relative to earnings and credit losses since the financial crisis, regulatory compliance has become one of the most significant concerns of companies in the financial services industry. Due to the severe consequences faced by non-compliance, keeping up with the regulatory changes and implementing the necessary controls to satisfy those requirements has resulted in increased cost and risk for companies in this sector. It is inevitable for companies in the financial services industry to invest in technology that collects and mines data, performs in-depth data analysis, and provides insightful reporting. This consequently ensures that processes are standardized, procedures are followed consistently, and enables the organization to stay abreast of the new regulatory policies.


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Evolving Business Models

The cost associated with compliance regulations is merely one of the many factors that are prompting companies in the financial services industry to transform themselves and their operational strategies. Some of the other factors adding to the financial services industry challenges include decreasing ROE, increasing the cost of capital coupled with sustained low-interest rates, and decreased proprietary trading. These challenges are forcing many institutions to create new competitive service offerings that would rationalize business lines and seek improvements in operational efficiency in order to attain profitability. Companies in the financial services industry must be structured for agility as a failure to adapt to changing demands is not an option.

Data Security

Security risks top the list of concerns that top financial services companies are facing right now. Companies in this sector often mull over the security of their customers’ assets and data. They often find them questioning the security measures protecting their own IP. Today, the pace at which hackers are finding ways to infiltrate technology demands financial services companies to be on their toes when it comes to data security. It is vital for companies to stay up-to-date with the developing technology and share information among peers which promotes shared insights to enhance security across the company.

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Customer Retention

The global financial services landscape is changing. Today, customers are more aware and up-to-date on market events than ever before. They are increasingly expecting companies to provide them with personalized and meaningful experiences through intuitive and simple interfaces irrespective of the devices they use. Furthermore, customer loyalty and customer turnover are becoming more important for financial services companies owing to the rising competition. Getting to know the customers better and engaging with them can optimize interactions that would consequently result in increased customer satisfaction and subsequently decrease in customer churn. Several financial services companies are also using bots to deliver timely resolution for customer issues without incurring any additional costs. The use of sentiment analysis also helps these bots to understand the context of the message and quickly evaluate, escalate, and route complex issues to humans to resolve.

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